Geithner has a chance to redeem himself

Commentary: Bad news, he’s staying; Good news, a second chance

WASHINGTON (MarketWatch) — First, the bad news. Treasury Secretary Timothy Geithner, after a little arm twisting from President Barack Obama, now says he will stay in office through next year’s election.

This column has been consistently critical of Geithner from the time it appeared disclosure of his unpaid taxes would permanently harm his credibility (it has), through a series of bad policy choices. So it is prima facie bad news that he will stay at least another year and a half instead of leaving this month.

Now for the good news. The appalling decision by Standard & Poor’s to downgrade U.S. debt has made even Geithner look good as he took to television on Sunday to blast the credit rating agency for its “terrible judgment.”

Reuters

U.S. Treasury Secretary Timothy Geithner has a chance to redeem himself.

With the departure last week of Austan Goolsbee as chairman of the Council of Economic Advisers, Geithner is the last man standing, sitting or crawling from Obama’s original economic team — the team that succeeded partially in rescuing the U.S. economy from the financial crisis but then had a failure of nerve or imagination or something in restoring it to growth.

It’s not so much that Geithner is rising to the occasion, but that the situation has degraded to the point that he now looks like a towering figure of wisdom. In a capital awash in economic ignorance, Geithner has become the one-eyed king.

Take this statement, for example, in response to a question from CNBC’s John Harwood on Sunday: “I think S&P has shown really terrible judgment, and they’ve handled themselves very poorly. And they’ve shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement.”

Geithner is exactly right. The fact is the U.S. did not default, the political system did work, an agreement was reached.

In a capital awash in economic ignorance, Geithner has become the one-eyed king.

It was not a great agreement and the problem has not been resolved for eternity — but that’s not the way politics works. S&P, which demonstrated with those synthetic mortgage securities that it can’t even properly assess financial risk, is plainly out of its depth in assessing political risk.

More wisdom from Geithner: “The judgment by S&P changed nothing. It added nothing to what people know about this country. There’s no risk the U.S. would never meet its obligations.”

Period. Amen. The markets seemed to agree, driving down Treasury yields even as concern about the global economic situation, especially the crisis in the euro zone, roiled stock markets.

The conversation between Obama and Geithner about his staying was a private one, but perhaps the president suggested to his top economic official that he has a chance to go down in history as something other than “Turbo Tax Timmy.”

By staying the course, Geithner can prove his mettle in dealing with an economic crisis that in many ways rivals the one this administration inherited from President George W. Bush. (Many argue, of course, that it is simply a continuation of the same economic crisis, which Geithner and other members of the Obama economic team failed to resolve.)

By forgoing for a few more months the big bucks that he will no doubt collect on Wall Street, Geithner can show that he has learned something in the past two years and can demonstrate the economic leadership we’re not getting from the White House.

That foreclosure next door? For rent

(5:05)

WSJ's Nick Timiraos reports the Obama administration will be seeking input from investors to launch a program whereby foreclosed homes will be available as rentals to improve the housing market. AP Photo/David Zalubowski

In his interview on Sunday, Geithner said he didn’t want “to do politics.” But he did say: “Congress ultimately owns the credit rating of the United States. They have the power of the purse in the Constitution. And they’re going to have a chance now to earn back confidence of investors around the world.”

That could sound a lot like, “Blame the Republicans,” and it would probably be scored correct in a class on constitutional law.

And voters do seem ready to blame Congress, at least in part, for the fiasco of this deficit debate. In the end, though, voters hold the occupant of the White House responsible for anything that takes place on his watch.

So Obama and Geithner have their work cut out for them — calming markets, keeping the new deficit super-committee in Congress from doing any grave damage, cheerleading business into hiring more workers.

The Treasury secretary was already working it Sunday, looking optimistically beyond the damage done by the deficit debate. “Our country is much stronger than Washington,” Geithner said. “We have a very resilient economy. And I have enormous confidence in the basic regenerative capacity of the American economy and the American people.” He added: “We’ll get through this.”

Obama has decided that he wants Geithner to stick around and help him win re-election. It could mark a turning point for the Treasury secretary, offering him a chance to redeem his reputation. Let’s see what happens next.

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